How will the US Supreme Court verdict against Aereo impact streaming and cloud services?

The US Supreme Court has ruled against the Internet TV service Aereo, saying that the service breaches the broadcasters copyright, deeming it to be similar to a cable company that is streaming content without a license.

Founded by Indian born Chaitanya “Chet” Kanojia (a graduate of NIT, Bhopal), Aereo allows individual customers to receive broadcast shows via a small, individual digital antenna (leased by them, hosted by Aereo), store them on the cloud (essentially a Digital Video Recorder function), and then stream them to devices such as PC’s, Apple TV, Chromecast, Roku.

How it works

A server tunes an antenna, which is dedicated to the use of one subscriber alone, to the broadcast carrying the selected show. A transcoder translates the signals received by the antenna into data that can be transmitted over the Internet. A server saves the data in a subscriber-specific folder on Aereo’s hard drive and begins streaming the show to the subscriber’s screen once several seconds of programming have been saved. The streaming continues, a few seconds behind the over-the-air broadcast, until the subscriber has received the entire show. Each subscriber has a personal copy of the show that is streamed, received via a personal antenna.

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Customers pay for storage of the content, and not for the channels, and Aereo, since it picks up broadcasts off the air, doesn’t have to pay channels. Customers essentially leased an individual antenna, which makes this different from an Internet streaming service. GigaOm has a fairly detailed overview of how Aereo works, here.

Aereo argued that it’s a home antenna plus DVR, while the broadcasters, which filed this case, argued that it is a cable company that isn’t paying them, and violating their copyright. Under the US Cable Television Consumer Protection and Competition Act (1992), cable companies in the US have to pay broadcasters to carry their channel.

It’s worth noting that in India, the situation is the opposite, with the TRAI institutionalizing carriage fees, wherein cable companies can charge broadcasters to carry the channel. In India, broadcasters, which are forced to pay cable companies, would probably welcome a service like Aereo.

Also, channels aren’t really being “broadcast” in India, it’s more of a multi-cast: terrestrial TV broadcasting is the mandate of Prasar Bharati, and the broadcast ecosystem is built on top of a fairly elaborate cable network, as well as via DTH. So imagine an antenna that could pick up a DTH signal without you paying for it.

1. The Copyright infringement verdict: The Supreme Court of the US has held that Aereo was infringing the broadcasters copyright – their right to “perform” their copyrighted works “publicly.” The US Copyright Act “was amended to clarify that to “perform” an audiovisual work means “to show its images in any sequence or to make the sounds accompanying it audible,” and hence covers retransmission. This is why it was deemed that Aereo isn’t just an equipment provider (or an intermediary). The court has recognized that Aereo is different from a cable provider because of the users involvement in the operation of the equipment, but deemed that “this sole technological difference between Aereo and traditional cable companies does not make a critical difference here.”

“Viewed in terms of Congress’ regulatory objectives, these behind-the-scenes technological differences do not distinguish Aereo’s system from cable systems, which do perform publicly. Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies.”

2. The dissent: The verdict was passed with a 6-3 vote, and the dissenting judges said that the fact that the consumer and not Aereo operated the antenna, was a necessary difference, and “Aereo should not be directly liable whenever its patrons use its equipment to “transmit” copyrighted television programs to their screens.” Justice Scalia deemed that Aereo itself has not engaged in infringing activity”, and rejects the “guilt by resemblance” notion, which Fred Wilson has referred to as the “‘if it walks like a duck and quacks like a duck, it must be a duck’ argument.

Implications

1. Cloud storage services liable for copyright violation? This judgment could impact all forms of cloud storage: effectively, in the Aereo case, a service which allowed you to make a copy of a broadcast and retransmit it to your device was held liable for allowing you to do so. Thus, intermediary liability goes out the window, and if you share music files via Dropbox, it can be argued, with this as precedence, that Dropbox is liable for your act of copyright infringement.

It may perhaps be too much of a stretch, but on the Internet, every act of information transmission involves copying and then erasing. In his dissent, Justice Scalia has pointed out as much:

‘Internet-service providers are a prime example. When one user sends data to another, the provider’s equipment facilitates the transfer automatically. Does that mean that the provider is directly liable when the transmission happens to result in the “reproduction, of a copyrighted work? It does not. The provider’s system is “totally indifferent to the material’s content,” whereas courts require “some aspect of volition”.’ Justice Scalia contrasts this with Netflix, which chooses which content is available to subscribers, and that is an act of volition, saying that Aereo doesn’t do this.

Scalia also points out that the impact on cloud storage providers cannot be ruled out, despite the Courts assurances: “The Court vows that its ruling will not affect cloud-storage providers and cable television systems, see ante, at 16–17, but it cannot deliver on that promise given the imprecision of its result-driven rule. Indeed, the difficulties inherent in the Court’s makeshift approach will become apparent in this very case.

2. Are streaming tools legal? Are DVR’s legal? What of services like Plex, XBMC, the PS3 Media Server, VLC (which has a media server), which essentially allow you to stream content from one device (like a mobile phone or a laptop) to the other (an Android box, Chromecast, PS3), over protocols such as UPNP and DLNA? All these services first buffer content and then allow you to stream it. If a user streaming content via these apps is violating copyright, can the services be held liable too, for buffering content? Under the US Copyright Act, wouldn’t these be deemed as “performances” as well?

Scalia’s dissent points towards the issue with DVR’s as well, saying that “One would cover any automated service that captures and stores live television broadcasts at a user’s direction. That can’t be right, since it is exactly what remote storage digital video recorders (RS–DVRs) do no.”

Note that while the judgment initially appears to cover live broadcast, it doesn’t necessarily deem that only simultaneous delivery infringes copyright.

3. Chilling Effect on innovation: Justice Scalia points out that the US came within one vote of “declaring the VCR contraband 30 years ago”…”The dissent in that case was driven in part by the plaintiffs’ prediction that VCR technology would wreak all manner of havoc in the television and movie industries”…”The Networks make similarly dire predictions about Aereo. We are told that nothing less than “the very existence of broadcast television as we know it” is at stake. Aereo and its amici dispute those forecasts and make a few of their own, suggesting that a decision in the Networks’ favor will stifle technological innovation and imperil billions of dollars of investments in cloud-storage services.”

This judgment might lead to further scrutiny of whether existing and potential technological innovations break the law, and this will stifle innovation. If the intermediary liability rule did not exist, YouTube wouldn’t, and neither would Dropbox. DVR’s would be illegal, as would streaming services.

“Today’s decision by the United States Supreme Court is a massive setback for the American consumer. We’ve said all along that we worked diligently to create a technology that complies with the law, but today’s decision clearly states that how the technology works does not matter. This sends a chilling message to the technology industry. It is troubling that the Court states in its decision that, ‘to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress.’ (Majority, page 17)That begs the question: Are we moving towards a permission-based system for technology innovation?

“Consumer access to free-to-air broadcast television is an essential part of our country’s fabric. Using an antenna to access free-to-air broadcast television is still meaningful for more than 60 million Americans across the United States. And when new technology enables consumers to use a smarter, easier to use antenna, consumers and the marketplace win. Free-to-air broadcast television should not be available only to those who can afford to pay for the cable or satellite bundle.”

“Justice Scalia’s dissent gets it right. He calls out the majority’s opinion as ‘built on the shakiest of foundations.’ (Dissent, page 7) Justice Scalia goes on to say that ‘The Court vows that its ruling will not affect cloud-storage providers and cable television systems, see ante, at 16-17, but it cannot deliver on that promise given the imprecision of its results-driven rule.’ (Dissent, page 11)”

“We are disappointed in the outcome, but our work is not done. We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world.”